What Is The Dow?

What Is The Dow Jones Industrial Average?

We’ve hear a lot about the Dow in the news. It goes up and folks are happy. It goes down and folks panic. But what is this mystical Dow that everyone is talking about?

The Dow actually stand for Dow Jones Industrial Average. It’s made up of the 30 largest and most widely held public companies. The average is a scaled average which is price weighted to account for stock splits. Although it only accounts for 30 companies, the Dow has historically been in line with the larger US market. For this reason it tends to be the most common indicator of the market in general.

The Dow was first published in 1896 and consisted of 12 companies:

American Cotton Oil Company

American Sugar Company

American Tobacco Company

Chicago Gas Company

Distilling and Cattle Feeding Company

General Electric

Laclede Gas Light Company

National Lead Company

North American Company

Tennessee Coal, Iron, and Rail company

US Leather Company

Unites States Rubber Company

Today’s Dow looks very different:

3M

Alcoa

American Express

AT&T

Bank of America

Boeing

Caterpillar

Chevron Corporation

Citigroup

Coca-Cola

DuPont

ExxonMobil

General Electric

General Motors

Hewlett-Packard

Home Depot

Intel

IBM

Johnson & Johnson

JPMorgan Chase

Kraft Foods

McDonald’s

Merck

Microsoft

Pfizer

Procter & Gamble

United Technologies Corporation

Verizon Communications

Walmart

Walt Disney

Update – On June 8, 2009 GM and Citigroup were replaced by The Travelers Companies and Cisco Systems.

When it started the Dow averaged 40.94. It’s recent high was 14,164.53 on October 9, 2007.

Why is it so important?

Since the Dow represents 30 of the largest US companies, changes in the stock prices of the Dow can be seen to represent the general health of US companies. Higher averages mean growth and profits while lower averages represent contraction and losses.

Do you follow Dow prices? Do you think it’s an accurate economic indicator?

About Glen Craig

Glen Craig is married and the father to four children that he spends the day chasing as a stay-at-home-dad. He took an interest in personal finance when he realized most of his paycheck was going toward credit card bills. Since then he's eliminated his credit card debt and started on a journey towards financial freedom.

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Comments

Nice post. And I think you indirectly highlight a very important point . . .

The Dow is often considered “the market”. Typically, when someone says what did “the market” do today, they’re referring to the Dow.

But the Dow is by no means a fair representation of the actual US Stock Market. It continually amazes me that an index of 30 stocks can be equated with the broader market which is comprised of thousands of companies of all sizes.

Granted, the Wilshire 5000 (total market index) and the Dow 30 typically move in the same direction most of the time, the degree of their correlation is often much less than 1.

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